Crack Down On Illegal Stock Trading Accounts In China
10/27/2015 18:26
Thousands of illegally traded stock accounts faced a major regulatory official crackdown in China as the latest step in the fight against illegal activities in Chinese mainland stock markets. This crackdown was in a latest bid to bring back order to markets beaten down by very low morale that has wiped away trillions of valuation in China since June 2015.
So far, 3,255 accounts have been targeted by the China Securities Regulatory Commission (CSRC). Some of these accounts have been completely shut while some others have been forced to trade through legal channels.
The violations by these accounts included investors using means to facilitate margin trading outside regulated framework as well as failure of investors to register real names on the accounts. Margin trading, very simply put, allows investors to trade stocks with only a very small portion of the money as deposit by the use of borrowed funds. The authorities have now taken measures to crack down on these illegal margin trading accounts, which lend money to investors for leveraged stock investment.
The benchmark Shanghai stock index of China has fallen greatly and seen a dramatic slump of around 40 percent after hitting a peak on June 12. This prompted, rather forced the leaders to launch a never before seen rescue package. The package includes government backed entities buying equities.
The crackdown began in July 2015 and even now more than 2,000 accounts are to be checked by the China Securities Regulatory Commission (CSRC). These accounts are estimated to hold shares worth about 188 billion yuan (USD 29 billion).
Analysts confirmed that owing to the news of the crackdown, September 14th and 15th saw Chinese stocks falling greatly. The CSRC however played down the impact of this crackdown though and claimed that the crackdown will not have an obvious impact on the market.
Earlier this month, three companies had been fined by CSRC for carrying on illegal securities business. This has been blamed for the volatility in the falling markets. A combined fine of combined 453 million yuan (USD71 million) as levied on the three companies.
A journalist, Wang Xiaolu, who wrote a story saying the regulator was studying plans for government funds to exit the market, was detained by the police. The journalist wrote the story for Caijing, a respected business magazine in July. His article could have apparently hurt the market.
Four senior executives of Citic Securities, China’s biggest brokerage by assets and an official from the CSRC were also detained by the authorities on suspicion of illegal trading. They were detained for stock market violations. This was reported by the official news agency Xinhua, last month.
A joint campaign against what the authorities and regulators call ‘malicious’ short selling, was also announced earlier by the police and the CSRC and a nationwide action plan was put in place. This campaign is essentially a bet that stock prices will go lower.